Demand for Power in India Outstrips Current Energy Infrastructure

July 31, 2012 at 12:00 AM EST

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Before the major power failures, the Indian government had scaled back plans to spend $1 trillion to rebuild energy infrastructure over the next five years. Author Stephen Cohen and The Peterson Institute's Arvind Subramanian talk to Judy Woodruff about the future challenges for matching supply with demand for energy in India.

JUDY WOODRUFF: For more, we turn to Stephen Cohen. He’s lived in Delhi and is the author of many books on India and South Asia. And Arvind Subramanian of the Peterson Institute, where he’s an expert on Indian growth, trade and development.

And, gentlemen, we thank you both for being here.

Arvind Subramanian, let me start with you.

India is accustomed to smaller blackouts, but this was of a different magnitude.

ARVIND SUBRAMANIAN, Peter G. Peterson Institute for International Economics: Yes, this was an entirely different magnitude, 700 million people.

But in some ways, the real tragedy, Judy, of this is the fact that this highlights the fact that India’s chronically shortage — short of power. And that’s been a problem for 10, 20, 30, 40 years. And I’m hoping that this will shed the spotlight on that bigger and more persistent problem.

JUDY WOODRUFF: Chronically short of power, is that what’s behind this, Stephen Cohen?

STEPHEN COHEN, Brookings Institution: I think that’s true, but I think behind that is the fact that India, like China, shifting from a state-directed system of economy to one where enterprise operates on its own.

And both countries are in a state of transition. The Chinese have set up a weird capitalist market, market system operating. India is moving in that direction. But — so then they’re in this transitional period where it’s neither a market system that functions in response to demands nor a directed system where the state can compel things to happen. That’s still true to some degree in China, but not true in India.

When it breaks down in India, we see it very clearly.

JUDY WOODRUFF: What’s known to be the immediate cause of this? Is there something that triggered what happened yesterday and then today?

ARVIND SUBRAMANIAN: Yes.

As the report said, I think what happened was that because the monsoons have almost failed, 20 percent efficiency of rainfall. So supply has come down because the water tables have dropped. Hydropower is just 20 percent.

So, in the face of this declining supply and demand growing, what happened was that some states, especially the agricultural states like Punjab, started overdrawing on the grid. And the grid wasn’t equipped to handle that. So that tripped some line somewhere. And then that cascaded backwards, creating this big blowup.

JUDY WOODRUFF: So, Stephen Cohen, some of this, as I was reading today, has to do with the states drawing more power than they’re supposed to. How is that regulated?

STEPHEN COHEN: It’s not. That’s the problem. There’s no way of enforcing the states to stop drawing power that they doesn’t have, except to cut them off. And that may have been one of the triggers of this.

In all these disasters, complex disasters, there are many causes. In this case, the action of the states, the absence of a market in coal and other energy supplies, failure of the monsoon, these are all contributing factors. At the bottom of this, I think, is politics. In a sense, India has too much democracy. There’s too much…

JUDY WOODRUFF: Too much democracy?

STEPHEN COHEN: Too much democracy, in the sense that the central government can’t control these states the way they used to in the days of Nehru, when there was a single party at the center and the states.

Yet, they need the states. They need the state parties to stay in power at the center. So, they have to make concessions with the state. They can’t compel the states to do something. So, in a sense, that’s democracy, but it’s a negative aspect of democracy.

JUDY WOODRUFF: How do you see that, the politics?

ARVIND SUBRAMANIAN: Yes, I think it’s more an imperfect democracy than too much democracy, because the fundamental problem with power in India is that, if people were to pay for power, private investors would come rushing in to build an increased supply.

But the point is that politicians find it politically opportunistic to say, we will either give you no power, or we will give you free power or subsidized power. And, therefore, people don’t pay. And that’s OK. But 30 percent of the power generated in India is lost to theft and to free power. So…

JUDY WOODRUFF: To theft.

ARVIND SUBRAMANIAN: To theft, yes.

JUDY WOODRUFF: This is people — as we saw the video, people just plug in.

(CROSSTALK)

ARVIND SUBRAMANIAN: Yes, plugging in lines, people do.

And then agriculture — the farmers are very powerful in India. So they get free and subsidized power. And it’s proved to be environmentally catastrophic because water tables have dropped, the aquifers have dropped — have dried up.

So, this is a situation where politicians basically think it’s — they can win elections by promising free power. But the tragedy is that it leads to all these very adverse outcomes.

JUDY WOODRUFF: Stephen Cohen, I think people also look at India and they see the incredible business progress that it’s made, commercial progress, the progress in education, and yet the infrastructure not catching up.

STEPHEN COHEN: The business community are the first to say that the infrastructure is failing, that the government hasn’t invested as much in infrastructure as they can.

In a country that has so many billionaires, you ask why isn’t some of this money going to infrastructure? Partly, it is politics, in the sense that the billionaires and the rich of India can protect themselves from the kind of taxation that would build up the infrastructure.

And, again, it’s a question of political priorities. I would say that India is an imperfect democracy, perhaps maybe not too much democracy. But in an imperfect democracy, decisions are — these decisions are being made on political calculations, not economic and energy calculations.

ARVIND SUBRAMANIAN: In this case, I think business is actually hurt by what’s happening in power, because some people get very cheap power, and some people have to pay too much for power. And that’s business.

So…

(CROSSTALK)

JUDY WOODRUFF: There’s a real imbalance.

ARVIND SUBRAMANIAN: There’s imbalance, exactly.

And so what do they do? As the report showed, they get — acquire private generators, diesel-powered generators to generate their own power. And that’s, again, environmentally disastrous.

JUDY WOODRUFF: So, what does it take to change a system like this, in terms where India wants to go in the future?

STEPHEN COHEN: Well, sometimes, a shock like this will lead to a reform which would lead to, you know, major innovations and transformation of the system. I’m not sure whether the Indian system will respond in that way this time. We will have to wait and see.

(CROSSTALK)

ARVIND SUBRAMANIAN: I’m a bit more hopeful on this, because what’s happening in India is that some of the states are actually doing innovative things.

The state of Gujarat, which is like India’s China, has started implementing a system of power where people — where the farmers have to pay for power. But in return, they get more regular power. And that system, if it works, will help emulation by other parts of the country.

JUDY WOODRUFF: That’s not in the region, though, where there…

(CROSSTALK)

ARVIND SUBRAMANIAN: That escaped the power, because…

(CROSSTALK)

JUDY WOODRUFF: … it’s better-run.

STEPHEN COHEN: Yes. India is such a vast country that some of the states are doing very well. Others are doing very badly. In a sense, a system where the states that are moving well should be rewarded and the states that are doing badly ignored if necessary is the system that has to be in place.

But the problem is the political calculation depends on the number of votes, not on how well a state is doing economically. So, some states that have a lot of votes which are doing badly in terms of policy are getting political rewards from the center.

JUDY WOODRUFF: So, at the moment, as you look at what India aspires to be, what does this say about how difficult it’s going to be to get there?

ARVIND SUBRAMANIAN: It’s going to be very difficult to get there because, you know, the demand for power is just outstripping the ability to handle it.

But I think if we get some good, successful experiments in some of the states like, you know, what is happening in two or three states, I think in principle that can spread. And that’s I think the only basis for hope in India, because, fundamentally, the politics in New Delhi is not going to change very much.

STEPHEN COHEN: I think there are three things that have to happen.

The coal industry is a state monopoly. That has to be broken up. Secondly, they have to move on the question of nuclear energy. For political reasons, they block the importation of American nuclear power plants. Whether you like nuclear or not, they expect to have 25 percent of their power produced by nuclear in 15 or 20 years. And now they’re not going to reach their goal.

And, thirdly, they need to work with regional states, other regional states, Nepal, Bhutan, even Pakistan, to develop a hydroelectric grid based on water power, which is environmentally secure.

JUDY WOODRUFF: Complicated, and a stunning situation, yet one that at least has drawn the world’s attention.

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